Written by: Dana Udumulla

Key Points 

• Titling an investment held in your Self-Directed IRA (SDIRA) depends on the account type you are using.
• Self-Directed IRA investments are made to benefit your account and grow your retirement savings. Your SDIRA is the buyer and owner of the asset, not you personally.
• If you use Madison Trust as your Self-Directed IRA custodian and invest with a classic SDIRA, your investment will be titled “Madison Trust Company Custodian FBO [First Name] [Last Name] [Madison Trust Account Number].”

As the stock market’s volatility generally persists, investing in alternative assets continues to grow in popularity. Many seeking to diversify their retirement portfolio with real estate, promissory notes, and precious metals, typically utilize a Self-Directed IRA (SDIRA). 

When you invest with a Self-Directed IRA, you can receive tax-free (Self-Directed Roth IRA) or tax-deferred (Self-Directed Traditional IRA) earnings. To maintain the tax-advantaged status of an SDIRA, the IRS states that your SDIRA must own all assets, not you personally. In addition, all investment documentation must be properly titled with your Self-Directed IRA as the owner. 

Let’s explore how to title a Self-Directed IRA investment correctly at Madison Trust Company. 

How To Title a Self-Directed IRA Real Estate Investment 

When investing with an SDIRA, it is important to keep in mind that you are not personally buying the asset. You instruct your Self-Directed IRA custodian to execute the investment for the benefit of your IRA. Self-Directed IRA investments are solely made to benefit your account and grow your retirement savings. Your Self-Directed IRA is buying the investment and, therefore, is the owner of the asset.  

Sole Ownership Titling 

When you make an SDIRA investment, and your account is the only owner, title the asset as follows:  

• Madison Trust Company Custodian FBO [First Name] [Last Name] [Madison Trust Account Number].  

For example, Sue Fitzgerald holds a Self-Directed IRA at Madison Trust Company. Her account number is M1234567. She is looking to invest in a vacation rental at 123 Ocean Drive in Miami, Florida. When she invests with her SDIRA, the titling would be as follows: 

• Madison Trust Company Custodian FBO Sue Fitzgerald #M1234567 

To invest in the vacation rental, Sue first opens a Self-Directed IRA at Madison Trust. Then, she funds her account via transfer, rollover, or contribution.  

Once the funds are received, Sue instructs Madison Trust to invest in the rental property by referring to How To Invest in Real Estate with Your IRA PDF and completing an Investment Authorization Form. Sue would also upload all necessary real estate closing and investment documents to Madison Trust’s secure uploads portal. Once this is complete, the IRA is the owner of the asset, not Sue. 

All income and gains, such as rental income, goes back into Sue’s tax-advantaged retirement account. All expenses, such as maintenance fees, must be paid with Self-Directed IRA funds through the SDIRA custodian for the benefit of the IRA. 

Multiple Buyers 

For some investments, typically real estate, there may be multiple classic SDIRA owners of the same investment. In this case, the titling would be as follows: 

• Madison Trust Company Custodian FBO [Account Holder #1] [Account Number #1] X%, Madison Trust Company Custodian FBO [Account Holder #2] [Account Number #2] X%.  

When there are multiple buyers, it is important that the ownership percentages add up to 100% and are clearly stated. For example, a property costs $500,000. Sue Fitzgerald wants to invest $300,000 and her friend Bobby Khan wants to invest $200,000. The titling of the investment would be in the name of Madison Trust company for the benefit of their separate Self-Directed IRAs as follows: 

• Madison Trust Company Custodian FBO Sue Fitzgerald M1234567 60%, Madison Trust Company Custodian FBO Bobby Khan M0123456 40%.  

Self-Directed IRA LLC 

A Self-Directed IRA LLC (also known as a Checkbook IRA) is an IRS-compliant structure that provides the added benefit of checkbook control. It has become a popular investment vehicle for investments that have multiple transactions, such as a real estate rental property. This is because a Checkbook IRA provides real-time access to your IRA funds and superior liability protection. Investors must title investments within the IRA LLC correctly, just like they must do with SDIRA investments.  

The LLC is funded and owned by the IRA and managed by the IRA account holder. When titling an investment owned by an SDIRA LLC, the title is in the name of the LLC.  

For example, Sue Fitzgerald has an SDIRA at Madison Trust. She works with Madison Trust’s sister company, Broad Financial, to establish an LLC. She wants to purchase a real estate investment at 123 Ocean Drive in Miami, Florida. She elected to form her LLC in the state where the property is located and named the LLC “123 Ocean Drive LLC”.  

In this example, the titling for the property purchased with her LLC would be as follows:  

• 123 Ocean Drive LLC 

To invest in the vacation rental property with the Self-Directed IRA LLC account type, Sue first opens an SDIRA at Madison Trust and an SDIRA at Broad Financial. Madison Trust is her Self-Directed IRA custodian and Broad Financial serves as the IRA LLC Facilitator who establishes an LLC for her SDIRA. Then, Sue funds her Self-Directed IRA at Madison Trust via transfer, rollover, or contribution.  

Once funds are deposited into the SDIRA, Sue can then transfer the funds from her SDIRA to her new IRA LLC checking account at her local bank. Once the funds are in the IRA LLC checking account, Sue, as the manager of the LLC, can simply write checks or send wires to close on the property, pay expenses, and receive investment income in real time. 

Conclusion: Let’s Tie It All Up 

Typically stable investment return, diversifying your portfolio, and tax advantages are all benefits of investing with a Self-Directed IRA. To maintain your account and receive its benefits, it is critical to title your investments properly. 

Have Questions? We Have Answers! 

Speak with a knowledgeable Self-Directed IRA Specialist at Madison Trust today to get your questions answered about self-directed investing.